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A member of the The Cowboy and Indian Alliance protesting Keystone XL in Washington, D.C., in April 2014 (Paul J. Richards/AFP/Getty)

It’s rare to hear a reference to TransCanada Corp. these days without an accompanying mention of Keystone XL, its exhaustively debated and repeatedly deferred oil pipeline through the heart of the United States. Given the scale of public protest and political hand-wringing that has surrounded the project, casual observers might think the pipeline represents a make-it-or-break-it deal for the Calgary-based firm. But the reality is different: Certainly, Keystone is important to Canadian oil producers. But for TransCanada, previously known as a natural gas transporter (if it was known at all), not so much. The company isn’t staking its future on a single, all-important project, as market-watchers are pleased to point out. “In our view, Keystone XL is becoming less relevant for TransCanada,” Credit Suisse analysts wrote in an April note to clients. “From a strictly TransCanada perspective, Keystone XL is a ‘nice to have’ but not a ‘need to have’ project.”

To hear it from president and CEO Russ Girling, the big issue for TransCanada—indeed, for all energy infrastructure companies—is the shale revolution. The new-found ability to extract oil and gas from solid rock formations presents both an opportunity and a threat. The opportunity lies in the fact that there’s more oil and gas under our feet than previously thought. “In Canada alone, we’ve moved from 60 trillion cubic feet to 600 trillion cubic feet of recoverable natural gas reserves in something under five years,” Girling says. Instead of importing oil and gas from offshore, North America is now close to self-sufficiency and poised to begin pushing it in the opposite direction, toward the coasts, for export.

That raises the threat: The energy is coming from new places, rendering much of TransCanada’s legacy infrastructure—the seemingly perpetual income machine that generated a 20.3% profit margin in 2013—less than optimized and, at worst, obsolete. It’s cheaper today for eastern utilities to buy natural gas from nearby shale hotbeds in Pennsylvania and Ohio, for example, than to have it shipped clear across the continent from Alberta on TransCanada’s namesake Canadian mainline.

No longer able to rely on its existing assets to crank out rock-solid returns, TransCanada has a list of projects with a combined budget of $38 billion that it aims to have up and running by the end of the decade. This portfolio of unbuilt assets, it believes, will capture the new dynamics of energy supply and demand.

That $38-billion total includes Keystone XL, but a final ruling from the U.S. State Department­—which could now be delayed until after the November American mid-term election—is no longer seen as essential to TransCanada’s future. Of the $2 billion the company has already spent on the project, about half is recoverable, Credit Suisse estimates.

Indeed, Keystone XL isn’t even the largest project on TransCanada’s drawing board. That would be Energy East, a plan (more than twice as costly and potentially accretive to earnings as KXL) to repurpose one of the two parallel pipes that make up the Canadian gas mainline into the continent’s longest and largest-capacity oil pipeline. Energy East would be 4,600 kilometres long, more than a metre in diameter and carry 1.1 million barrels of oil per day, more than half the oilsands’ current output. It’s projected to cost $12 billion. Assuming an expeditious review process—it faces less formidable opposition than either Keystone XL or Enbridge’s recently approved Northern Gateway—it could be up and running by late 2018. From a fanciful afterthought a few years ago, Energy East has emerged as the oilsands-to-tidewater pipeline most likely to succeed.

“We’re not going to win them all,” Girling acknowledges, looking at the entire project portfolio. However, even if just half of that lineup comes into service by 2020, the company can match its historical pace of earnings growth, he says. Plus there are as-yet-uncosted projects not included in the $38 billion total—the refurbishment of the Bruce Nuclear Generating Station, a natural gas line across Alaska and expansions in Mexico among them—that could take the place of a cancelled Keystone XL or gas line in B.C.

Moreover, Girling thinks the markets may have been too quick to write down the value of the Canadian mainline, still TransCanada’s top earnings generator. “If you look at the cold winter we just had, it was pretty much full almost every day,” he notes. “As I look at that asset going forward, I believe in a world that has more gas to move to growing markets than we ever thought possible.”

Indeed, an agreement reached last winter, yet to gain regulatory approval, would give eastern utilities better access to American gas on existing and yet-to-be-built TransCanada short lines while maintaining a medium-term commitment to the mainline. Combined with the eventual conversion of half the mainline to Energy East, “this settlement pretty much solves all of their exposure,” says Carl Kirst, an analyst with BMO Capital Markets in Houston.

As for the future projects, “the market has imputed only modest value” to them, leaving significant upside as those projects firm up, wrote Canaccord Genuity analysts Juan Plessis and Zayem Lakhani in a recent note to clients. BMO’s Kirst factors in $22 billion of the $38-billion portfolio—leaving Keystone XL and the LNG projects off the ledger—in his $59 price target. (TransCanada stock is currently trading around $54.) There’s a good chance of surprises to the upside over the next 12 to 18 months, therefore, should some of these projects move forward. “They will need to get projects under construction before fair value comes into play,” Kirst says.

While TransCanada’s new profile has veered toward growth, it should still be viewed by investors as a yield stock, Girling says. Even the future projects will have predictable earnings, thanks to long-term contracts and regulated tolls. “If we actually get them all done,” he says, the company’s cash flow “will actually be less volatile than it is today.” The company projects full build-out would nearly double earnings before interest, taxes, depreciation and amortization to $9.5 billion a year from $4.9 billion in 2013.

And while the growing public and regulatory scrutiny affects the certainty and timeline of growth opportunities, FirstEnergy Capital analyst Steven Paget says they won’t ultimately cut into the industry’s margins. Increased costs associated with safety measures will be passed on to the shippers—that is, upstream oil and gas producers. Indeed, the higher the hurdles for new projects, the wider the moat around the companies that already operate in the pipeline space.

Of course, apart from the shale revolution, another important change in the energy landscape is taking place: the drive to reduce carbon-dioxide emissions. Girling insists TransCanada is onside with the trend, by enabling natural gas to be substituted for coal as the fuel for power plants, and by investing in nuclear and wind power. However, there is a faction, well represented in the opposition to Keystone XL and LNG, that would like to see a more drastic transition away from fossil fuels in all their forms.

The political ascendancy of this world view, along with the ever-present risk of a major pipeline rupture and the associated cleanup costs, represents the biggest threat to TransCanada’s grand plan to reconfigure North America’s energy infrastructure. A network of oil and gas pipes won’t be worth as much 30 years hence if people are heating their bathwater and powering their cars with solar panels on their roofs. And that’s starting to become a conceivable scenario, as renewable power generation costs plummet and governments mull carbon pricing. As it is, 2013 represented a turning point, when additions to global renewable power generation capacity surpassed that for coal, gas, oil and nuclear combined by 13 gigawatts, according to Bloomberg New Energy Finance.

Girling foresees another scenario, one where the transition to a post-carbon economy unfolds more slowly. The configuration of pipes and power plants will be different, he says, “but if we do it right, we will be able to change things for the better for our company, for the communities in which we operate and for the country. I can’t think of anything that can have an equal impact for all Canadians than us getting it right in terms of building the infrastructure that will allow us to monetize our natural resources on behalf of all Canadians.”

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